CONSTRUCTION BOOMING IN AL-HILLAH

UNCLAS SECTION 01 OF 02 HILLAH 000092 SIPDIS E.O. 12958: N/A TAGS: ECON SOCI IZ SUBJECT: CONSTRUCTION BOOMING IN AL-HILLAH HILLAH 00000092 001.2 OF 002 ¶1. Summary: Construction in Al-Hillah, particularly of homes, is booming. Land values have doubled in the past year and in some cases increased even more. Construction is fueled by Al-Hillah's strategic location, improved security, growing population and economy, and changing social customs. Al-Hillah's rapid growth will pose a serious challenge given the current lack of government enforcement of zoning and the absence of a master plan. Construction on the Rise in Al-Hillah -------------- ¶2. Local businessmen and economists tell us construction, particularly residential construction, is one of the most robust sectors of the economy in Al-Hillah, the capital of Babil province. The Director of the Ministry of Planning's Provincial Statistical Office said the number of private construction projects, including new homes being built by contractors, is on track to increase by 500 percent from 2006-2008, having risen from 134 in 2006 to 235 in 2007 and with a projected 750 by the end of 2008. ¶3. Government construction permits for public projects also increased, albeit it at a slower pace, from 230 in 2006 to 315 in 2007 and with a projected 350 by the end of 2008. In conversations with three large local construction companies they said that while new home construction was doing very well, public sector projects were plagued by corruption, delays in payment, and poor planning. ¶4. Outside investors want to get in on Al-Hillah's housing market. The Talia company, a construction firm with branches in London, Baghdad and Erbil, recently met with the Governor to discuss a proposal to build a residential complex with 2000 apartments in Al-Hillah while a Lebanese firm is looking to develop 500 housing units. Land Values Increasing Dramatically -------------- ¶5. Dr. Mejbel Rafia Merjan, Dean of the Economic Department of University of Babil, estimated that in the last two years land prices doubled in Al-Hillah. While the greatest dollar increase was for high-value city-center property, the greatest percentage increase came from agricultural land on the city's edge being used for residential construction -- in some cases multiplying by 400-500 percent over the past two years. ¶6. Alaa Harba, the Chairman of the Babil Investment Commission, noted that raw land values have increased more rapidly than the cost of land with homes. Part of the difference can be attributed to the fact that many buyers purchase old houses and immediately tear them down to build more modern homes. Home prices range from USD 50,000 for a basic two bedroom, one-bathroom home outside of town to USD 100,000 for a similar home within the city center. Larger homes, especially new ones within the city center, can cost up to USD 400,000. Construction costs generally fall between USD 400-USD 500 per square meter. Location and More Fuels Construction -------------- ¶7. Al-Hillah's construction boom has been fueled by its location, growing population, improved security, more and higher paying jobs, lack of other investment opportunities and changing social customs. Al-Hillah's location in the heart of an agricultural region between Baghdad and Basra make it a natural spot for growth. With a birth rate of 4.7 percent, the 700,000 population needs almost 6,000 new housing units a year even without newcomers. ¶8. But newcomers are coming to Al-Hillah because it is seen as safe: improved security has made the city a safe haven for Shias fleeing Baghdad as well as a magnet for rural inhabitants hungry for an urban lifestyle after years of instability. While the unemployment rate remains murky, there is general agreement that employment rate and salaries are rising. Local sources note that the number of laborers looking for day jobs has shrunk noticeably. ¶9. For those with extra funds available, land is the easiest and safest investment. Anyone with the money can purchase property. More significantly land values, unlike the interest on bank accounts, surpasses the inflation rate. ¶10. Changing social customs also contribute to the rise in residential construction. Young married couples, who in the past often lived in the homes of one of their parents (usually the husband's),are now more likely to move into their own homes earlier, particularly when the couple both have jobs. Because it can be difficult to obtain bank loans, and the price of homes has outpaced the rise in incomes, workers will often pool their HILLAH 00000092 002.2 OF 002 salaries and take turns using the common fund to make down payments on land and build homes in stages. Uncontrolled Urban Sprawl Could be Problem -------------- ¶11. The PC recently rejected a draft master plan for Al-Hillah. PC Planning Committee Chairperson Qusae Nadi Ali Hummadi told us the plan was filled with errors and planners hadn't engaged stakeholders in its development. Qusae said that shortly after the PC passed a resolution rejecting the plan they were told by the Ministry of Municipalities that the plan would be used and that the PC lacked authority to reject it. Qusae said the PC now plans to file a lawsuit challenging the plan, but admitted that the situation created a planning vacuum that may be difficult to fill. ¶12. Qusae said that while general zoning regulations existed they were largely ignored with increasing number of homes being built on non-residential zoned land. The government's inability to enforce property laws is highlighted by the increasing number of squatters who build substantial homes on government property. About a year ago a PC member entered a neighborhood of squatters and, with appropriate security in place, began loudly haranguing the homeowners for illegally building on government property. The squatters vociferously objected to his presence and went so far as to file a complaint with the governor's office about his behavior. The squatters, and their homes, are still there. ¶13. Security improvements have also had unintended consequences on urban development patterns. Parking is often not allowed in the city commercial center in front of stores. In response, new commercial districts have sprung up next to the highways on the outskirts of town, where drivers can park in front of stores, and some large residential lots have evolved into mini malls. Lack of Credit Slows Construction Somewhat -------------- ¶14. Loans from private banks to buy property or build homes are not easy to obtain. The government real estate bank offers low interest home construction loans but the process is not quick -- an existing back-log of close to 1,000 loans means months before applications are considered -- and loans are slowly doled out in thirds after each stage of work is completed. Three large local construction companies told us that while home building was on the rise, the difficulty in obtaining bank loans was a major impediment for builders and would-be home owners. And in a recent survey of local construction businesses virtually all pointed to lack of credit as a serious problem. ¶15. Comment: Construction, especially residential, is giving Al-Hillah's economy a short-term boost. Still, rapid growth combined with a lack of government enforcement of zoning and the absence of a master plan will likely pose a serious long-term challenge for Al-Hillah. HILLAS